The linked exchange rate system currently implemented in Hong Kong is technically called the Monetary Committee. This system is different from the familiar pegged exchange rate system, which can keep the exchange rate within a predetermined level without the central bank's frequent intervention in the foreign exchange market.

According to the currency board system, the monetary base (the sum of issued Hong Kong dollar banknotes and Hong Kong dollar settlement accounts opened by banks in Hong Kong) needs to be fully supported by US dollars with a fixed exchange rate. Note-issuing banks in Hong Kong must hand over the equivalent HK$ (that is, HK$ 7.8 to US$ 65,438+0) to the Foreign Exchange Reserve Fund in exchange for debt certificates before issuing banknotes of that denomination to support their overall reserves.

When HKMA passively buys or sells Hong Kong dollars from banks, the US dollar reserves held by HKMA will increase or decrease accordingly, and the monetary base of the Hong Kong dollar will also change accordingly. The expansion or contraction of the monetary base will cause the interest rate to fall or rise, that is, the monetary situation will automatically adjust according to the inflow or outflow of funds, so that the exchange rate will remain stable throughout the process. This is an automatic adjustment process, and HKMA does not need to make any decisions on its own.

The currency board system mentioned above has been implemented in Hong Kong since 1983 and has been effective. Despite the global stock market crash of 1987, the euro exchange rate mechanism crisis of 1992, the Mexican peso crisis of 1994 and the Asian financial crisis of 1998, the exchange rate of the Hong Kong dollar has remained stable.